Is Bendigo & Adelaide Bank (ASX:BEN) Undervalued? Two Simple Valuation Methods Reveal Insights

April 14, 2025 09:23 PM PDT | By Team Kalkine Media

Is Bendigo & Adelaide Bank (ASX:BEN) Undervalued? Two Simple Valuation Methods Reveal Insights — Image source: Shutterstock

PE Ratio Points to Relative Value

The Price-to-Earnings (PE) ratio remains a classic tool for evaluating listed companies. It measures the relationship between a company’s share price and its earnings per share. Currently, (BEN) has a PE ratio of 11.9x, based on its FY24 earnings of $0.87 per share.

To put this in context, the average PE ratio across the banking sector stands at approximately 17x. Applying that sector average to (BEN)’s earnings would imply a share price valuation of $14.37—well above its current price. This comparison suggests that the market may be pricing in more conservatism around the company’s earnings outlook or risk profile.

Dividend Discount Model (DDM) Suggests Higher Valuation

A second valuation method, the Dividend Discount Model (DDM), focuses on the company’s dividends. It's particularly relevant for bank shares like (BEN), which tend to have stable and predictable dividend policies.

Using last year’s dividend of $0.63 per share and a range of discount and growth rate assumptions, the DDM model estimates a share valuation of $13.32. Adjusting the dividend slightly higher to $0.65 increases the estimated value to $13.75.

Taking it a step further, including franking credits by calculating a gross dividend of $0.93 results in a valuation of $19.64. That’s nearly double the current trading price and reflects the potential uplift that tax-advantaged income streams can offer eligible shareholders.

More Than Just Numbers

While valuation models like PE ratios and DDM provide useful snapshots, they are only part of a more comprehensive analysis. A full assessment would consider Bendigo & Adelaide Bank’s competitive position, lending growth strategy, exposure to economic cycles, and trends in housing markets and consumer sentiment.

These models are a strong starting point—but far from the final word—on understanding the value behind (BEN)'s share price.

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